How China Just Neutered America9 min read
With China’s GDP growth slowing (relative to the last 20 years), the country is taking steps to ensure it dominates not just the beginning, but the rest of the 21st century…
China intends to achieve its global superpower goal by mastering the flow of consumer goods, and unleashing its industrial capacity through what is known as the One Belt, One Road Initiative. If enacted as China plans, it “has been estimated that this emerging network could be pumping out upwards of US$2.5 trillion of annual trade value by 2025,” according to South China Morning Post.
For self-directed investors holding equities or ETFs with exposure to Asia, Europe or most emerging markets, the significance of the One Belt, One Road Initiative will be obvious… The impact it will have on global trade and growth projections for Eurasia is, quite literally, unprecedented in the last 500 years. In fact, this is the biggest trade initiative the world has ever seen.
China’s One Belt, One Road Global Trade and Infrastructure Initiative
One Belt, One Road, known as OBOR, is focused on connectivity between the People’s Republic of China and the rest of Eurasia. It consists of two main components: the land-based “Silk Road Economic Belt” and oceangoing “Maritime Silk Road”.
A belt and a road impacting 40% of the world economy, with China in the middle of it all… pulling the strings.
One Belt, One Road will be an estimated “…$1.4 trillion project potentially touching 64 nations, no less than 4.4 billion people and around 40 per cent of the global economy,” according to Sputnik International.
What began as a lofty 2013 goal of Chinese President Xi Jinping’s is now becoming reality as opposing trade deals of the West, such as TPP, are met with lukewarm receptions (click here to read about the real reason Obama is pushing for TPP). China’s OBOR initiative will consist of hundreds of different infrastructure projects; and nearly two dozen countries have been outspoken supporters of the plan…
As of May, 2016, China had signed agreements with more than 20 countries to initiate what it is describing as “systematic industrial capacity cooperation”. China is executing its master plan… and it is genius.
You see, the infrastructure build-up plan in the 60+ countries serves China on many fronts. In the near to medium-term, it allows China to use its excess supply of metals such as copper and iron ore, of which the nation holds an estimated $100 billion worth. Long-term, the benefits are even more obvious: new trade markets, heightened geopolitical influence, and less reliance on the USD.
While being compared by many to the US’ Marshall Plan to rebuild post-war Europe, the lasting impact of China’s One Belt, One Road Initiative could reshape the power structure of the world.
The extensiveness of OBOR, from a trade and infrastructure perspective, will allow China to more effectively distribute its goods to over half the world’s population, and 40% of the global economy. If enacted, it won’t take long for China to become the largest economy on earth…
Just last month, the train pictured above completed a 13-day, 7,000km ceremonial trip to Hairatan via Kazakhstan and Uzbekistan. This is all part of China’s “…efforts to unite the region through its transport and infrastructure plan called “One Belt, One Road,” according to a South China Morning Post article from September.
China: At the Centre of Changing Global Infrastructure
We can’t think of a global platform better designed to break China’s and her allies’ dependence on the U.S. dollar. While Obama ineffectively peddled the TPP (Trans-Pacific Partnership) against the wishes of many American senators and congressmen, which China was not invited to participate in (click here to read our report on this shafting), the actual re-centering of global trade is happening an ocean away, in Eurasia. The vast majority of global growth is expected to take place in emerging markets in the coming decades as the West continues to age and drown in an ocean of debt, a lack of growing young families and unfunded liabilities.
In what some are calling the ‘Eurasian Century’, dozens of emerging markets, led by China, are coordinating an infrastructure and trade plan unrivaled since the original Silk Road 500 years ago. By connecting parts of Western Europe with all parts of Asia, Russia and most of the Middle East, China will eventually influence the transportation of goods to a hypermarket roughly 10 times the size of the US economy. If delivered as planned, this will become a reality in less than 10 years, and China will rule the globe. Countries will look to align themselves with China before America – we’ve already seen US allies break rank to support the Asian Infrastructure Investment Bank…
Banks Line Up to Profit from One Belt, One Road
If you haven’t figured out that global finance is all about debt and leverage, try this on for size: The derivatives market is worth more than $1 quadrillion. While the West is tapped financially, with families barely having one child per household, populations are exploding in Africa and the Middle East, and China knows it. More people means more debt and buyers of low quality Chinese goods.
The Chinese led Asian Infrastructure Investment Bank (AIIB) began lending in early 2016 and is said to be participating in the financing of OBOR. Founded by China in 2014, this bank boasts participation of 56 other countries who are dedicated to lending for projects that are part of the OBOR initiative. A Chinese news agency recently reported,
“Countries along the line are actively discussing the establishment or the expansion of bilateral cooperation funds of all kinds. Financial cooperation is unfolding quickly, which provides strong support for the construction of important projects.”
As early as November 2014, according to Hong Kong Shanghai Alliance Holdings, President Xi Jinping announced plans to create a USD$40 billion development fund (The Silk Road Fund) which will be distinguished from the banks.
Just as the World Bank and IMF financed infrastructure projects around the world in the 20th century, largely to the benefit of U.S. owned companies, it is now the AIIB and other global emerging market funds, such as the New Development Bank, that will lead development in Eurasia – strings attached, of course.
The New Development Bank (whose members are BRIC nations) has a stated objective of funding infrastructure projects in developing countries to meet the aspirations of millions through sustainable development…
The Initial Benefactors: Chinese Companies and the Yuan
The OBOR initiative will be led by the:
“Asian Infrastructure Investment Bank and Silk Road Fund, creating a structure for Chinese companies to help build the roads, railway lines, ports and power grids that are sorely needed in many parts of Asia, Africa and the Middle East. That, in turn, will involve loans and swap deals aimed at making the yuan a global currency.”
While this won’t happen overnight, the writing is on the wall. The U.S. is falling from grace as it continues to run huge trade and budget deficits with manufacturing jobs and natural resource development leaving for more competitive markets.
Winning Africa – The Final Frontier
Notice on the map above the ’21st-Century Maritime Silk Road’ to Africa. China wants to be sure it has a stronghold in Africa, which we wrote about here.
Take Kenya, for example. With a population of nearly 50 million and GDP averaging between 4-6% since 2014, it’s no wonder the Maritime Silk Road will have a major port there.
In a Weekly Volume from late-2014, titled, The World’s Next China, we highlighted the rush to secure long-term relations with African nations:
“By quietly deploying private military contractors, navies and government troops, both nations have been building up their presence on, or near, the resource-rich continent for years. However, despite the United States’ superior military presence, China has been eating America’s lunch in Africa when it comes to trade and political influence.”
The Silk Road will open Eastern Africa up to trade with Eurasia like never before. China is following through, while the U.S. is getting left behind.
China’s OBOR may not simply be a counterpunch to the U.S.-backed TPP, but ultimately a knock-out blow. Not only was China intentionally excluded from TPP participation, but also from the Transatlantic Trade and Investment Partnership and the EU-Japan agreement. All of these agreements project comprehensive liberal agendas. Despite exclusion, China has calmly initiated OBOR with plans to negotiate free-trade agreements with 65 countries along the route. And, not surprisingly, many participating nations in the pending TPP are begging for access to OBOR… it’s a much bigger prize.
To ease warranted concerns, such as escalating conflict in the South China Sea, President Xi Jinping has diplomatically emphasized “Three Nos” with respect to the One Belt, One Road Initiative:
* No interference in the internal affairs of other nations
* Does not seek to increase the so called “sphere of influence”
* Does not strive for hegemony or dominance
China knows that a strong economy equals populous support at home; and, in turn, a strong military. As the U.S. economy continues to stumble and languish near just 1% growth, with infrastructure decaying from within, this lesson appears to be lost on American politicians.
In a post featured on Zero Hedge, titled, The Eurasian Century Is Now Unstoppable, the depleted state of U.S. infrastructure is revealed:
“The American Society of Civil Engineers recently estimated that gross domestic product will be reduced by $4 trillion between 2016 and 2025 because of lost business sales, rising costs and reduced incomes if the country continues to underinvest in its infrastructure. That is on top of the fact that they estimate the country at present urgently requires new infrastructure investment of $3.3 trillion by the coming decade just to renew.”
With the national debt in America approaching $20 trillion (more than 100% of GDP), and annual GDP growth averages trending down over the past 30 years, it is clear the American Century is long over…
It is only a matter of time before the U.S. dollar is dethroned as the world reserve currency. If OBOR is enacted, it won’t be long before America has to compete with dozens of other nations to import Chinese goods as the powerhouse of Eurasia frees itself from the U.S. dollar.
All the best with your investments,
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